A fully quantized analysis is presented on the origin of induced magnetic dipole (MD) scattering in two-level diatomic molecules. The interaction is driven by dual optical fields, E and H*, and is universally allowed in dielectric optical materials, including centrosymmetric media. Leading terms of the interaction are shown to be quadratic and cubic with respect to the intensity, predicting an upper limit for the induced magnetic dipole scattering intensity (IMD∝m2) that is equal to the electric dipole scattering (IED∝p2). The optical dynamics proceed by first establishing an electric polarization in the system. Then the magnetic field exerts torque on the orbital angular momentum of the excited state, mediating an exchange of orbital and rotational angular momenta that enhances the magnetic moment. The magneto-electric interaction also accounts for second-order, unpolarized scattering from high-frequency librations previously ascribed to third-order, all-electric processes.